Kyiv, Ukraine, Oct 4 (IPS) – Over the next month, the United States has an opportunity to lift a multi-billion dollar burden from Ukraine and other countries in financial distress, without costing American taxpayers a single cent .
The International Monetary Fund (IMF) is currently considering an end to the controversial ‘surcharges’ – punitive fees it imposes on countries whose debts exceed a certain threshold. These surcharges are in addition to the regular interest and service costs, and that is also possible increase the costs of borrowing by as much as 40 percent.
By piling additional costs onto an already heavy debt burden, additional costs make it more difficult for struggling countries to reduce debt to sustainable levels while siphoning off scarce resources needed for healthcare, education, climate action and development.
In theory, surcharges are intended to discourage dependence on IMF loans. But the countries forced to turn to the IMF face bigger challenges than a lack of stimulus.
Over the past five years, developing countries have been plagued by devastating global crises far beyond their control: COVID-19, debilitating food and energy price shocks, skyrocketing interest rates, and increasingly frequent and severe climate disasters. During this period, the number of countries paying surcharges has increased shot up from eight to twenty-two.
It is clear that the allowances are not achieving their purpose.
My country, Ukraine, is an example of this. Ukraine has spiraled deeper into debt as it defended itself from a catastrophic and illegal invasion and is now the world’s second-largest benefit payer. Over the past five years, we have paid approximately $750 million in benefits. Surcharges will be introduced in the coming decade will cost us another $3 billion.
These $3 billion may not mean everything for Ukraine’s future. But in times of war, every dollar counts. That’s $3 billion out of Ukrainian hands to the world’s largest multilateral financial institution – $3 billion that cannot be spent on defense, humanitarian needs or reconstruction.
Other countries also suffer unfairly from the surcharges. By 2022, unprecedented flooding which flooded a third of Pakistan’s entire territory and displaced 8 million people. Over the next five years, as Pakistan tries to recover from this catastrophe, it will be forced to pay $445 million in surcharges.
Egypt – experienced that growing hunger since the Russian war disturbed the wheat import – Kenya – which has been hit by the crisis deadly unrest due to its crushing debt burden – Barbados – recently hit by a record-breaking hurricane – they all pay a significant part of their budget, on top of the regular costs of borrowing, as punishment for needing the IMF’s help.
Experts and activists have long warned that surcharges are harmful and counterproductive. Members of the American Congress, UN human rights experts, leaders by to developto land, Nobel Prize winning economistsAnd hundreds of social groupsincluding Ukrainian organizations like mine, have all called for an end to the policy.
That effort got a sudden boost this year when the IMF announced that its precautionary balances, which were built up partly with the help of surcharges, had achieved their target level. In other words, the IMF already has what it needs to limit potential losses, without putting pressure on the countries it is supposed to help.
Forcing countries like Ukraine to fill rich countries’ financing gaps by using additional revenues to finance the Fund’s concessional lending programs, as some have done suggestedis just backwards.
With the Biden administration supportthe IMF recently initiated a review of the allowance policy. A final decision is expected at the Fund’s October meetings, making this month the only chance to ensure that the outcome of this long-awaited surcharge reassessment is not a ticked box and a margin adjustment, but complete elimination of it.
There are plenty of precedents. The IMF has introduced some kind of surcharge policy several times in its 80 years of existence. At every opportunity the Fund will ultimately determined the policy to be a failure and a reverse course. This time it should be done for good.
But that is not possible without American support. As the largest voter at the IMF, any policy change essentially goes through the Biden administration.
That should be an easy win. While Ukraine’s financing has become increasingly controversial in Congress, the IMF’s surcharge review offers President Biden the opportunity to save Ukraine – and other heavily indebted developing countries – billions of dollars, without a political fight and without any costs.
Opportunities like this don’t come around often, especially in the final months of one’s presidency. For the sake of Ukraine and the citizens of indebted countries around the world, President Biden should seize this one.
Anna Kornylyuk is a senior policy and data analyst at the Kyiv-based Institute of Analytics and Advocacy.
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© Inter Press Service (2024) — All rights reservedOriginal source: Inter Press Service